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Income inequality ‘causing economic stagnation’

Income inequality is one of the main culprits behind continuing economic stagnation in the USA, Europe and throughout the world, according to a United Nations report. It says reducing inequality through fiscal and incomes policies is key to promoting economic growth and development.

Key points

Total income in most major economies has grown dramatically over the past twenty years, but wage income has not. The result is that investors are becoming progressively richer relative to wage earners.

Policies that preserve the share of workers in national income, and redistribute income through progressive taxation and public spending, would improve economic efficiency and growth.

Workers’ wages – both average wages and the minimum wage – should be linked to the overall performance of the economy. They should also keep pace with expected inflation, and not just past inflation.

Flexible labour markets encourage firms to compete by reducing wages rather than by investing in new facilities and new technologies. Hence greater inequality between profit and wage incomes is an 'entirely ineffective' remedy for unemployment. As far as possible, the wage level for similar qualifications should instead be similar throughout the economy, and not left to the discretion of individual firms.

Source: Trade and Development Report, 2012: Policies for Inclusive and Balanced Growth, United Nations Conference on Trade and DevelopmentLinks: Report

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PSE:UK is a major collaboration between the University of Bristol, Heriot-Watt University, The Open University, Queen's University Belfast, University of Glasgow and the University of York working with the National Centre for Social Research and the Northern Ireland Statistics and Research Agency. ESRC Grant RES-060-25-0052.